Between 1979 and 1988, building owners who converted their properties from apartments to condominiums were required to include BMR Units in their project. These Condominium Conversion Program BMR Units are price-restricted under San Francisco Subdivision Code Sections 1341 and 1385 for households of low or moderate income, depending on how the property was originally designated.
Ordinance No. 320-08 (the Ordinance) passed last year, amended the San Francisco Subdivision Code related to the Condominium Conversion BMR Program (the Program). The Ordinance was intended to clarify the rules applicable to existing BMR Units in the Program, and to provide updated standards for BMR units purchased on or after the effective date of the Ordinance. The Ordinance also provides a way for BMR Units in certain older conversion projects to be released from the Program, so that the unit becomes a market rate unit. This article will focus on the rules applicable to existing BMR Units in the Program, and the options for release from the Program. The Ordinance is administered by MOH, and much of the information in this Update is taken from their website (“http://www.sfgov.org/site/moh_page.asp?id=117961”).
The Ordinance provides that current owners of individual BMR Units may elect to stay in the current Program under the rules for pre-legislation owners, or may select one of the options listed in the Ordinance, including release from the Program. Original Subdividers have two exclusive options under the Ordinance. The various options are summarized below.
Owner Categories
The Ordinance divides owners into four categories: pre-affidavit owners, pre-legislation owners, post-legislation owners and original subdividers. The definitions of each owner category are summarized below.
Pre-Affidavit Owners. Owners who purchased or acquired their BMR unit before December 1, 1992 are called “Pre-Affidavit Owners.”
Pre-Legislation Owners. Owners who purchased or acquired their BMR unit before January 18, 2009 (the effective date of the Ordinance) are called “Pre-Legislation Owners.”
Post-Legislation Owners. Owners who purchased or acquired their BMR unit on or after January 18, 2009 (the effective date of the Ordinance) are called “Post-Legislation Owners.” Owners in this category will be automatically enrolled in the updated Condo Conversion BMR Program and are subject to the requirements for Post-Legislation Owners. The options below do not apply to Post-Legislation Owners.
Original Subdividers. Owners, or their successors in interest, who owned an apartment building at the time of conversion to condominiums and have continued to rent their units under Subdivision Code Section 1341 are called “Original Subdividers.”
Available Options under the Ordinance
A. Pre-Affidavit and Pre-Legislation Owners
Option 1: Continue to be Governed as a Pre-Legislation Owner (Stay on the Current Program)
Only Pre-Affidavit Owners and Pre-Legislation Owners are eligible for this option. If an owner chooses to stay on the current Condo Conversion BMR Program, the BMR Unit will continue to be regulated by the provisions in the Ordinance that relate to units acquired prior to the effective date of the Ordinance.
An owner does not need to do anything to remain in the current Condo Conversion BMR Program. Any BMR Unit for which the City and owner have not finalized an agreement under one of the other options by January 18, 2011 will automatically remain part of the current Condo Conversion BMR Program and subject to the provisions in the Ordinance for pre-legislation owners.
Option 2: Agree to be Governed as a Post-Legislation Owner (Opt Into the Updated Program)
Only Pre-Affidavit Owners and Pre-Legislation Owners are eligible for this option. If an owner chooses to opt into the updated Condo Conversion BMR Program, the unit will be subject to all of the requirements applicable to post-legislation owners
If an owner opts into the updated Condo Conversion BMR Program, the base price of the BMR Unit will be increased one time to the value printed in the Ordinance. This may enable the owner to sell the unit at a higher price. However, the BMR Unit will become subject to restrictions of the Program, including rental, resale and other restrictions.
Option 3: Pay a Fee and be Released from the Program
Only Pre-Affidavit Owners are eligible for this option. If an owner chooses to pay the fee, the unit will be permanently released from the Program. The fee is determined as the lesser of: 1) the fee printed in the Ordinance, or 2) 50% of the difference between the fair market value and the BMR price at the time of repayment. If an owner is unable to pay the fee immediately, a loan may be available from the City in the form of a City Lien. Call or email us if you need more information on this Option.
B. Original Subdividers
Option 1: Demonstrate a 20-year Affordable Rental History and be Released from the Program
Only Original Subdividers are eligible for this option. If an owner chooses to demonstrate that any or all of that owner’s BMR units have been rented within the Program’s guidelines for 20 years, those units will be permanently released from the Program. An owner must follow required procedures to demonstrate that the owner has complied with the affordable rental requirements. A rental history must be compiled for each BMR Unit the owner wishes to have released from the Program.
Option 2: Pay a Fee and be Released from the Program
Only Original Subdividers are eligible for this option. If an owner chooses to pay the fee for any or all of the BMR units, those units will be permanently released from the Program. The details are similar to the fee payment discussed above. Note that there will be one Fee and Release Option Agreement to cover all of an owner’s BMR units. If an owner selects the lien option for some or all of that owner’s units, the owner will be required to record a separate Promissory Note and Deed of Trust for each unit.
Conclusion
The Mayor’s Office of Housing (MOH) implements the Program, and reviews and processes all applications under the Program. To select any of the options described in this article, written requests must be made to MOH. Please see the MOH website for more information and required forms, or call or email Jay Drake with questions. MOH is currently accepting and processing owner applications under the Program.
Please note the following important deadlines:
- Complete applications must be received by MOH no later than December 1, 2010.
- The transaction for an owner’s chosen option must be completed by January 18, 2011. All agreements must be fully executed and all relevant documents must be recorded against the property by January 18, 2011.
- Original subdividers choosing one of the two applicable options available to Original Subdividers are not bound by the December 1, 2010 or January 18, 2011 deadlines applicable to pre-legislation and pre-affidavit owners in the Ordinance.
BMR unit owners interested in the options described above should obtain legal advice before agreeing to opt into the updated Condo Conversion BMR Program or entering into an agreement with the City.
Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.
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